RE:RE:RE:RE:RE:Reopened a position at 2.81
BlueJay2020 wrote: Good post. This is one of the rare stocks where your valuation methodology is actually not a bad ballpark indicator. What you've mentioned about torque is key - those deals where there's a fixed annual fee with a slight increment each year are nothing to get excited about, although they do provide a solid foundation to build sexier things on.
I am surprised the payout isn't closer to 100% - what are they holding onto the extra for? A cushion?
I have 3 ideas on why:
#1 - Everyone is worried about a recessionary period and everything that goes along with it, it doesn't make much sence if there could be rocky roads ahead to send that money out at the current time and lose some safety. Some of the deals we have are not set rate deals, if there's a pullback on spending at say Mr. Lube, that distibutable income reduces, or should things get in rough shape for a business like Mr. Mikes they can allow a suspension/deferment of payments again. Flexiblity seems prudent, but also maybe it does open up opportunities to gain a deal or a few should buisnesses need help without endangering ourselves...
#2 - Why payout more when they aren't getting rewarded for the already large payout. This has stuck with me ever since I read the CEO at Pembina Pipelines point it out a few years ago when they took a breather in growing thier dividend. He felt the current rate (at the time which was giving a 6+% yeild) wasn't being bid on by the market and they felt undervalued because of it, it took almost 4 years for them to increase the payout which similar to us was based on a new accretive acquisition that they did anticipate would move the needle. We are nearly 8.5% yeild now which some in the market get skeptical about, why increase it to 9+% while we are underwalued.
#3 - They just haven't gotten around to it yet. We have been discussing it the past few months regularly the past few months, maybe they haven't been on it as much, or maybe it's in the works for years end. Maybe post anouther transaction, sometimes transactions where a company makes a new acquisition it's met with the market jumping out, knowing that attaching a dividend raise to an acquisition announcement may mitigate that effect or maybe send the share price for a jump up.
Now I don't fully believe any of the ideas I've brought up are the correct answer, but I lean towards the opening line of #3, it's very likely coming, it seems the writing is on the wall unless they are changing the model they have been working with of paying out almost all distributable income to holders. I personally want to continue that high payout, I like collecting money. Maybe they don't discuss it monthly to go along with the announcements like we just received, maybe they review every 3 months at quarter end and they felt we just weren't ready at that time. It's something I would like to see discussed or pointed out more in the MDA of what targets exactly they are trying to achieve before the next raise so that we have something to look forward to. I believe the only thing they offer routinely is thier intention to 'payout most of the distributable income to shareholders', some companies give a target payout ratio or expected payout growth guidance near term.